FEE CMU Policy Update

February 2016

European Commission

Commission publishes responses to call for evidence – 1 February

The European Commission has published the received industry reactions to its call for evidence on financial sector legislation passed in the aftermath of the crisis that erupted in 2008. A total of 287 responses were received, most of which are available in a public Commission database. Notably Bloomberg has provided an initial summary of the received feedback. A variety of industry stakeholders have raised issues relating specifically to their sectors, whilst emphasising overall the need for regulatory consolidation and review, as opposed to new initiatives.

Replies to call for evidence:


Keynote speech by Commissioner Jonathan Hill at the European Banking Authority’s 5th Anniversary Conference – 5 February

Commissioner Hill has delivered a keynote speech for the occasion of a European Banking Authority (EBA) conference. In his speech, Commissioner Hill notably highlights some of the upcoming initiatives from the Commission’s side. One of these includes a review of the Capital Requirements Regulation (CRR), where the Commission will notably look into ways of simplifying banks’ reporting requirements, and with regard to lending to SMEs Commissioner Hill wants to ensure that the thresholds under which loans can qualify for lower capital requirements are high enough. He moreover confirms that a consultation on business insolvency is to be anticipated (probably around April), ahead of a legislative proposal in autumn.


Developments on business insolvency – 15 February

A number of recent developments with regard to this year’s business insolvency regime reform have emerged in past weeks. The Commission is going to launch a public consultation in all likelihood in April. Stakeholders have already started showing interest in influencing the process. The Association for Financial Markets in Europe (AFME) has recently published a report on Business Insolvency (link below). Overall, AFME is supporting Commission’s earlier Recommendation on reviewing insolvency regimes. In addition, AFME is asking for the Commission to propose a “Chapter 11″ insolvency regime as it exists in the US. Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor’s business affairs and assets. It gives the debtor a fresh start, subject to the debtor’s fulfilment of its obligations under its plan of reorganization The European Banking Federation (EBF) seems to have a very different view on the issue. According to EBF, easing the insolvency procedures for entrepreneurs -aiming at giving them a second chance- could have a negative impact on banks’ balance sheets. It could also imply raising the risk premium and making lending more expensive.


Speech by Commissioner Jonathan Hill at the European Forum for Manufacturing and Association for Financial Markets in Europe Dinner Debate – 17 February

Commissioner Hill has delivered a speech for the occasion of an event organised by the European Forum for Manufacturing (EFM) and Association for Financial Markets in Europe (AFME). In his speech, the Commissioner notably confirms that the Commission will take stock of the received replies to the call for evidence, and will publish its conclusions on the received feedback by summer. He moreover listed measures that the Commission will be undertaking during this year. On top of business insolvency (see more details above), the Commission will assess how to simplify the system to reclaim withholding tax when these are subject to double-taxation. According to the Commissioner, due to the complexities of the current system investors do not always reclaim the money they are entitled to and the estimated costs of this amount to a total of €8 billion annually. On the venture capital side, the Commission will put forward a proposal to amend existing legislation, i.e. EuVECA and EuSEF. The purpose will be to build up scale, diversity and choice. Also with regard to venture capital, the Commission will assess how to further support venture capital and crowd in private investment with a European venture capital fund of funds. Finally, the Commission will consider proposals for a European simple personal pensions market, and will come up with a plan for next steps in 2016.



European Parliament

Draft report on access to finance for SMEs and increasing the diversity of SME funding in a Capital Markets Union, ECON Committee holds first exchange of views – 4/22 February

The European Parliament Economic and Monetary Affairs (ECON) Committee has published a draft report on SME funding in the context of the Capital Markets Union (CMU). The lead rapporteur for the dossier is the MEP Othmar Karas (EPP/AUT). Of particular interest, the report notably acknowledges the diversity of SMEs and mid-caps in the EU, takes note of the differences in financing conditions for SMEs between Member States, and underlines the need for diverse funding options for SMEs throughout their lifecycle. With this in mind, the report emphasises the importance of bank lending for SMEs, stating that this will remain the main source of funding for a majority of them. With this in mind, the report emphasises the importance of “standardised and transparent” SME credit information, with particular focus on proportionality in order to avoid overburdening smaller businesses. On the equity financing side, the report calls on Member States to enhance the financial literacy of SMEs, stresses the need for proportionate regulation with less complex and burdensome disclosure and listing requirements for SMEs, and of particular interest notably from the prospectus reform perspective emphasises the importance of the transparency, standardisation and public availability of SME financing information for investors, supervisors and other stakeholders in order to understand the risk profile and take informed decisions. The report is non-legislative and commits neither the Commission or the Council to action, but it will provide valuable insights into the European Parliament’s positions with regard to SME financing. In terms of next steps, the report will be voted on in the ECON Committee in the upcoming months, followed by a final vote in Plenary in June.

On 22 February the ECON Committee held a first exchange of views on the report. The lead rapporteur Mr. Karas highlighted that SMEs are disproportionately hit by regulatory requirements. He furthermore reminded that there is a great variety of different SMEs which need a wider range of financing options and tailor-made financing instruments. He emphasised however that bank loans will remain the main financing instrument for SMEs. He moreover called for an extension of the supporting factor and for developing an European risk culture. The other MEPs emphasised the continuing relevance of banks for SMEs, agreed that SMEs are disproportionately affected by regulation and that the capital markets may not be the most appropriate financing tool for SMEs. Greens and EFDD (Eurosceptic group of MEPs) highlighted that according to SMEs themselves, it is not access to finance but a lack of aggregate demand that constitutes a major challenge.


ECON Committee holds first discussion on prospectus reform – 15 February

The European Parliament’s (EP) ECON Committee has held an initial exchange of views regarding the European Commission’s proposal for reforming the prospectus regime. On 30 November the Commission proposed to replace the Prospectus Directive with a Prospectus Regulation with particular focus on overall simplification, reformed thresholds and tailored regimes for SMEs and secondary issuance. The discussion precedes the anticipated publication of a draft report by the MEP Philippe De Backer (ALDE/BEL). EP will co-legislate with the Council on the dossier, and an agreement between the two institutions is necessary before the Commission proposal becomes EU law. During the discussion, most participants welcomed the Commission proposal and its intention of simplifying the prospectus regime, especially for SMEs. At the same time, some representatives urged to maintain an appropriate balance between simplification and investor protection. Several MEPs moreover regretted the number of items left out of the political discussion and moved to future delegated acts. This probably relates to the exact format and information requirements of the special prospectuses being left for later technical proposals. In terms of next steps, ECON Committee is currently scheduled to vote on Mr. De Backer’s report in June, whilst the Council is aiming for a political agreement by May-June. This means that inter-institutional negotiations will take place in autumn at earliest.




ESMA: Corporate Finance Standing Committee Prospectus Operational Working

Group – 27 January

The European Securities and Markets Authority (ESMA) has published the terms of reference for a Corporate Finance Standing Committee Prospectus Operational Working Group (“the Group”). The main purpose of the Group will be to promote common supervisory approaches and practices across Member States, and to focus in particular on the implementing measures and advice for the Commission’s proposed framework for prospectus reform. The members of the Group will organise ad hoc sessions of supervisors to discuss operational issues and supervisory practices, and exchange views on issues of particular importance or difficulty. The members are representatives of Board members from competent authorities with the “necessary authority and day-to-day responsibilities in the field of operational and supervisory issues”. Representatives from the Commission will also participate in the meetings. The Group demonstrates ESMA’s greater focus on prospectus issues with the view of providing input for the Commission’s Prospectus Regulation proposal, specifically with regard to the exact contents and formats of the prospectuses.


Consultation on EIOPA’s advice on the development of an EU Single Market for personal pension products – 1 February

The European Insurance and Occupational Pensions Authority (EIOPA) has launched a consultation on its recommendations a second regime for pan-European personal pension products (PEPPs). The consultation focuses in particular on how such a PEPP could form the basis for a broader European personal pension products market. Additional details and analysis are provided in an IPE article linked below.


IPE article:

EBA consults on draft guidelines on implicit support for securitisation transactions – 5 February

The European Banking Authority (EBA) has launched a public consultation on draft guidelines on implicit support for securitisation transactions. The guidelines aim to provide greater clarity on arm’s length conditions and situations under which a transaction is not structured to provide support for securitisations. The deadline for replies is 20 April.


ESMA publishes first Supervisory Convergence Work Programme – 12 February

The European Securities and Markets Authority (ESMA) has published its Supervisory Work Programme (SWP) for 2016, a first of its kind. The SWP details the activities and tasks that ESMA plans to undertake in order to “promote sound, efficient and consistent supervision across” throughout the EU. The SWP entails a number of initiatives and projects in the areas of MiFID2/MiFIR and MAR, but also includes provisions aiming to support the application of the European Commission’s CMU Action Plan. The SWP is divided into nine thematic areas each with a set of objectives and plans for the upcoming year. The thematic areas include: corporate finance, corporate reporting, investment management, investor protection and intermediaries, market integrity, post-trading, secondary markets, IT delegated projects, and cross-cutting activities. Below is a link to the full document.




German, French central bankers call for euro zone finance ministry – 7 February

According to Reuters, the heads of the French and German central banks have called for a Eurozone Ministry of Finance in their article for the Sueddeutsche Zeitung. They argue that the European Central Bank (ECB) is unable to generate “sustainable long-term growth” in the euro area beyond its monetary policy tools. Consequently, the central bankers emphasise the need for a eurozone Finance Ministry, an independent fiscal council and a “stronger political body” that can take decisions.



Other News

The impact of BEPS on financial services – 28 January

ICAEW’s Economia has published an article reflecting on the potential effects of the BEPS project recommendations on the financial services industry. The article raises concerns in particular with regard to the potential harmful effects of limitations to interest deductibility, and notably discusses the definition of a “public benefit” exclusion which would allow an exemption from the new rules.



Event reports

Swiss Finance Council: Attracting International Investors – How can the EU work with its partners?  – 18 February

The Swiss Finance Council organised an event in mid-February on how to attract international investors in Europe. The key topics of the event were the CMU and the implementation aspects of the EU financial sector legislation. The speakers included the Commissioner for Digital Services Günther Oettinger, Andrea Enria from the European Banking Authority (EBA), the MEP Burkhard Balz (EPP/GER), and Martin Merlin, CMU Head of Unit at the European Commission. Despite expectations, there were no new policy announcements. When discussing market fragmentation, panelists referred to the importance of IFRS 9. Andrea Enria mentioned that there are several steps to be taken forward in order to improve consistency at a global level. Sylvie Matherat, Chief Regulatory Officer at Deutsche Bank agreed and was positive on a maximum possible harmonisation of implementation. Moreover, Swiss stakeholders pointed out that unfair taxation was one of the key issues to address when it comes to enhancing private equity investments in Europe (debt-equity bias).


Bruegel: How to improve national insolvency regimes – 23 February

At a recent Bruegel event on Business Insolvency, several stakeholders expressed views on business insolvency. Among others, a representative from the European Commission mentioned that there seems to be lack of information on business insolvency at Member State level. Another participant pointed out that there was a great divergence among Member States’ regimes both when it comes to judiciary systems, but also on professionals taking care of the insolvency procedure.




01/03/2016, EU Prospectus Regulation – Striking a balance, QED, 14:30-16:45, Brussels

15/03/2016, Regulating Financial Benchmarks, QED, 14:00-18:00, Brussels

24/05/2016, 14th Annual European Financial Services Conference, Forum Europe, 08:30-15:00, Brussels.